Icra downgrades six funds of HDFC, UTI, Birla AMC citing exposure to IL&FS group entities

Mumbai: Domestic rating agency Icra has placed the ratings of six mutual fund schemes under watch with negative implications due to their exposure to the crippled infra lender IL&FS group entities. The schemes being put under watch include a short term debt funds and banking and PSU debt funds from HDFC, banking and PSU debt fund, bond fund, dynamic bond funds from UTI, Aditya Birla Sun Life short term opportunities fund, Icra said in a statement on Tuesday. The rating action is due to the “deterioration in the credit quality” of the underlying investments of these schemes driven by their exposure to special purpose vehicles (SPVs) of IL&FS Group, the agency said. These schemes have exposure to Hazaribagh Ranchi Expressway, Jharkhand Road Projects Implementation Company, and Jorabat Shillong Expressway, the agency said. [caption id=“attachment_5251861” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] “The default risks by various SPVs of IL&FS have increased after the recent management communication to the trustees expressing to stop future repayments citing their interpretation of an order given by National Company Law Appellate Tribunal on 15 October, 2018,” the agency explained. Two SPVs of IL&FS demanded a refund of the debt payment executed by them after 15 October, 2018 from their trustees, it added. “Despite a ring-fenced structure and adequate cash flows to service the debt obligations, these SPVs have asked the trustees to stop debiting the SPVs escrow account towards its future obligations,” it said. The exposure of two HDFC funds to Hazaribagh Ranchi Expressway stood at 0.55 percent and 0.29 percent of their AUMs, respectively, as of end December, it said. The same for three UTI funds to Jorabat Shillong Expressway stood at 6.87 percent, 5.98 percent and 6.25 percent of AUM, according to Icra. The Aditya Birla Sun Life short term opportunities fund has exposure to Jharkhand Road Projects Implementation Company stood at 1.15 percent, it added. In case of delays in honouring its obligations by these SPVs, their ratings are likely to be downgraded, impacting the credit scores of these MF schemes, it said. The key rating driver will be the ability of these schemes to rebalance the portfolios within a month of any rating action, the agency said, adding it will continue monitoring the portfolios. It can be noted that IL&FS group, which has debt outstandings of over Rs 94,000 crore, which has not been serviced since September last, has been defaulting on its payment commitments since August last year. Initially, the exposure to SPVs which are delivering steady cash flows were considered to be among the safer bets taken by financiers.     To keep watching India’s No. 1 English Business News Channel – CNBC-TV18, call your Cable or DTH Operator and ask for the Colors Family Pack (inclusive of 24 channels), available for Rs. 35/- per month, or subscribe to the channel for Rs. 4/- per day. To keep watching the Leader in Global Market & Business News – CNBC-TV18 Prime HD, call your Cable or DTH Operator and ask for the Colors Family HD Pack (inclusive of 25 channels), available for Rs. 50/- per month, or subscribe to the channel for Rs. 1/- per day.